– Greece has voted and it seems the No camp has won. That’s the first step toward either a new deal or a Grexit. It’s certainly not an end in itself as forex traders have highlighted this morning, taking the Euro back under 1.10 at this morning’s open. That’s also knocked the Aussie dollar lower and seen the Yen rally against both the USD and the Euro.
– Since the early count and news that the No vote was ahead there has been a flurry of comment both from European leaders and from well investment banks. JP Morgan now has Greece leaving the Euro as its base case. Oxford Economics now puts the chance of Greece leaving the Euro at 85%. The key here, and something traders will be fretting about, is that Greece has voted no to the deal that was on the table last week. There is currently no deal and Greek finance minister Varoufakis has clearly persuaded himself that Europe needs Greece and won’t let it go under. So event though there is much chatter about new talks this morning there is every chance that we get the same result as before the referendum: nothing.
– The key here is that the Greek people have voted to back the approach taken by Varoufakis and Tsipras but that doesn’t necessarily change the approach of the German, French and Dutch with whom they have been negotiating. While Varoufakis has said the No vote empowers him to “call on our partners to find common ground,” already the German foreign minister has said the ball is in Athens’ court. The Luxembourg prime minister added that even though he is confident in a solution it is up to the Greek government “to explain how it sees the way forward.”
– Based on research released last week most investors appear to have gone into the weekend expecting a Yes vote win. So in essence and urbane to trade on global forex, bond and stock markets, is that all that has changed from 10 days ago is that we now know that Greece’s aggressive strategy has been “approved” by its population. But that doesn’t mean they’ll get what they want, or what Greece needs. That will, already has, bias the Euro lower, Yen higher, bond rates lower and stocks could come under pressure. That’s the message from Mohamed El-Erian who has posted on Facebook that the No-vote will lead to stock market weakness.
– All of which leaves Friday night’s market moves as little guide to trade in Asia today. But, here’s the overnight scoreboard (6.09am AEST):
- Dow Jones Closed
- Nasdaq down Closed
- S&P 500 Closed
- London (FTSE 100) down 0.67% to 6,585
- Frankfurt (DAX) down 0.37% to 11,058
- Tokyo (Nikkei) up 0.08% to 20,539
- Shanghai (composite) down 5.84% to 3,684
- Hong Kong (Hang Seng) down 0.83% to 26,064
- ASX Futures overnight (SPI September) -7 points to 5,474
- US 10 Year Bonds Closed
- German 10 Year Bonds -5 to 0.80%
- Australian 10 Year Bonds -6 points to 3.02%
- AUDUSD: 0.7455
- EURUSD: 1.1015
- USDJPY: 121.95
- GBPUSD: 1.5556
- USDCAD: 1.25495
- Crude: $56.93
- Gold: $1,167
- Dalian Iron Ore (September): 402
– On the local market the ASX200 fell more than 1% on Friday and it looks set to be under pressure again today if Mohamed El-Erian is correct. It’s difficult to know but if markets did really expect the Yes vote to win there will, some selling pressure on stocks in Australia. Already this morning stock futures in Sunday trade in the US are getting absolutely smashed. The Dow is down over 200 points while the S&P 500 is off close to 40 points. That sets up a bad morning for the local ASX 200 even if the Chinese have now thrown everything, including the kitchen sink, at the crashing stock market. And of course to complicate things the iron ore price continues to fall.
– China is where the other big news is today. Having thrown everything but the kitchen sink at the Shanghai stock bubble last week the government has now tossed that in too as it tries to stem the haemorrhaging. In new measures, announced over the weekend, the government is backstopping $19 billion of buying into the market by brokers on margin and cancelling IPOs. It’s hard to stop air running from a bursting bubble.
– On forex markets we are getting possibly the best indication that traders are getting worried about the impact of Greece on investor risk appetite. The Yen (forex safe haven) has strengthened and is back below 122 and the Aussie (global traders favourite punt) has fallen below 75 cents and is at its lowest level since 2009. In general the US dollar is stronger across the board against everything other than the yen.
– On commodity markets gold still can’t take a trick and is stuck at $1,167. Crude stayed near recent lows and Dalian iron ore for September finished at 402 down 2%.
– Data today in Australia kicks of a very busy week. The TD monthly inflation gauge is out along with ANZ Job Ads. German factory orders are out tonight and Markit services and ISM non-manufacturing are out in the US.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Like Qantas, Virgin shares slipped below potential support levels to hit a low of 41.5c in early June. The stock bounced off that level but has now retraced around 78.6% of that rally.
Now that Virgin has backed off its capacity war with Qantas in the domestic market, it has considerable potential to turn earnings around in coming years. If it can hold this 78.6% retracement level in the face of any “Greek” induced weakness in the wider markets, it will be a stock to watch.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC